Retained Earnings/Profit
Profits kept in business rather than distributed to shareholders.
Formula
Retained Earnings = Previous Retained Earnings + Net Profit − Dividends Paid
Real World
Berkshire Hathaway has never paid a dividend, accumulating hundreds of billions in retained earnings that Warren Buffett deploys for acquisitions without needing external finance.
Exam Focus
On data-response questions, check the balance sheet for retained earnings figures and use them as evidence when assessing financial health.
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